SC ruling on 1996 Cricket World Cup could hurt foreign portfolio investors: Report

Supreme Court of India

A Supreme Court ruling related to 1996 Cricket World Cup could have implication in 2020 for foreign portfolio investors (FPIs).

"India, Pakistan, and Sri Lanka were selected, on the basis of competitive bids, to have the privilege of jointly hosting the 1996 World Cup. These three host countries were required to pay varying amounts… in connection with conducting the preliminary phases of the tournament and also for promoting the game in their respective countries," the order noted .

During the Budget announced on February 1, the government had announced a withholding tax on dividends issued to FPIs.

This means that FPIs cannot apply for treaty protection under the new withholding tax that is deducted at source, Business Standard reported.

A tax consultant told the paper that Indian firms will now have to place a withholding tax of 20 percent (plus surcharge and cess) even when an FPI is eligible for a lower rate under the tax treaty.

"Foreign investors also effectively paid a slightly lower amount under the old dividend distribution tax regime. While FPIs may be net gainers in the new scheme of things, waiting a year or more for a tax refund can be cumbersome. It could be a huge cash flow issue," the consultant told the paper.

"Indian companies should have been allowed to withhold tax at treaty rates based on prima facie evidence and the onus should have been put on the investor to prove treaty eligibility, if needed," Rajesh H Gandhi, Partner at Deloitte Haskins & Sells, told the publication.